Continuation funds are moving from a niche private-equity tool to a mainstream liquidity solution as higher rates, weaker exit markets and tougher financing conditions make it harder for sponsors to sell assets at the prices they want.
That shift is now drawing sharper scrutiny. Reports this week said the SEC’s enforcement division is probing continuation vehicles, reflecting growing concern over how managers value assets, manage conflicts and disclose terms when a portfolio company is rolled into a new vehicle. For sponsors, the pressure is clear: continuation funds may solve a timing problem, but they also need to withstand a fairness test.
The underlying market backdrop helps explain why the structure has taken off. Bain says private-equity exit momentum has stalled, while PwC describes corporate sales, sponsor-to-sponsor deals, secondaries and continuation vehicles as critical release valves as the market works through a post-pandemic valuation reset. Higher rates have widened bid-ask spreads and made it harder to clear the multiples seen during the boom years. AFR similarly points to flatter IPO markets, subdued trading conditions, renewed inflation pressure, geopolitical instability and weaker liquidity as forces weighing on exits.
In practical terms, continuation funds allow a GP to transfer an asset from an aging fund into a new vehicle, giving existing LPs the option to cash out while new or rolling investors stay exposed. That is why the product is increasingly described not just as a special situation solution, but as a bridge between a stalled sale process and a later exit when financing and valuation conditions improve.
The market is large enough to support that evolution. Reporting cited in the research pack suggests global secondary volume topped $225 billion in 2025, with GP-led deals taking an expanding share of activity. PitchBook has said continuation funds rose from 2.7% of global PE exit value in 2020 to 8.1% last year, while other market summaries put GP-led secondary activity at about 19% of private-equity exit activity in the first half of 2025. A separate 2026 guide said continuation vehicles accounted for the vast majority of GP-led activity and that single-asset CVs made up more than half of GP-led volume.
That growth reflects more than opportunism. It also reflects a basic mismatch between what sponsors want to achieve and what today’s exit markets will pay for. As Business Standard notes, higher rates and stagnant valuations have ended the quick-flip era and pushed holding periods higher. In that environment, continuation vehicles can preserve optionality on assets that are still performing but are stranded by valuation gaps.
The mechanism is becoming more familiar to LPs as well. Lombard Odier says the secondary market has come of age as a mainstream exit route, and Trustnet reported that 40% of LPs expect continuation-vehicle activity to keep rising even if traditional exits improve. That suggests the structures are no longer being viewed purely as a sign of distress, but as a standard portfolio-management tool.
Still, the governance issue is now inseparable from the market story. ILPA’s guidance on continuation funds stresses the need for greater transparency and consistency as these transactions become more common, including clearer information for LPs weighing whether to sell or roll. That is exactly where the SEC’s attention will matter most: if continuation funds are to remain a durable part of private markets, sponsors will have to show not only that the price was right, but that the process was fair.
The result is a market that is both growing and maturing. Continuation vehicles are increasingly the release valve for an exit drought created by higher rates and a post-pandemic valuation reset. But the more they become a standard answer to a stubborn liquidity problem, the more they will need to justify themselves on valuation, disclosure and process quality as well as on timing.
